Selling And Distribution Cost


Selling and distribution cost are economic resources consumed by the firm to cater for activities of selling and distribution nature. The classification is based on the criteria of firm value addition. This classification of cost elements is based on the specific activities that take place as the product value is being added before it reaches the final consumer. So, cost elements are grouped on the basis on the primary function impacted on the product channel. Under this criterion, the following are the costs;

The cost element is based on the step or stage where the goods or services are ready for being transferred to the market. So, the costs are classified as selling and distribution which is the resources used to create and arouse demand. Such costs are such as;

Advertisement Cost


Advertisement cost are economic resources consumed to ensure there is market awareness of the product in question so as to increase demand for the good or service for the firm. This cost is incurred or paid before the actual sales is made. Advertising costs are classified as operating costs or expenses and they are expensed using profit and loss account (comprehensive income statement). Some of the firms normally plan in advance or budget on how much resources will be used for advertising purposes.

Market Research Cost


Market research cost is the foregone economic resources of a firm to investigate the intrinsic value that the potential customers assign to the firm’s product so as to assess the market potential. The cost may entail paying for scientific methods used for interrogating customers.

Distribution Cost


Distribution cost is the forgone economic resources of a firm so as to ensure that the goods or services are physically transferred from the current destination to the next user. Be it wholesaler, retailer or final consumer. For example, if it is a case of a manufacturer or producer, distribution cost entails all those expenses incurred to make possible the product delivery from its production site to the customer’s location, whether retailer, wholesaler, or the final end user of that particular product.

Advantages Of Selling And Distribution Cost

  1. Increases market share of the firm’s products

    Incurring or paying for selling and distribution cost promotes the number of customers loyal to the firm’s product and this increases firm profitability.

  2. Mitigates sales revenue risk

    When market research is undertaken, it reduces the chances of registering reduced levels of sales for through research, one can identify the areas of weaknesses and correct any shortcoming in time.

  3. It is a strategic move

    Market research is an approach of finding out the intrinsic character of the customer other than use of persuasive method which is misleading most of the times. So sales increases.

  4. Possible to do sales projections

    Market research guides the firm to have a futuristic eye on trend of sales in the near future and so one can plan on how to attach negative trends seen now.

  5. Help in solving demand needs of customer

    Since customers take a Centre stage in profitability of the firm, the market research tool aid in ensuring that the demand needs of the customer is addressed early in advance before things fall apart. 

Disadvantages Of Selling And Distribution Cost

  1. Costly for start-ups or small firms

    For small organizations, it can be very expensive to outsource for researchers to carry out an investigate on how to penetrate in to the market.

  2. Time consuming

    The process involved in research activity is long and need a lot of time such that by the time the producer or manufacturer is engaging in selling the first batch of goods the competitors may have taken advantage of the market. This is not the case if one learns on the duty.

  3. Market research report misconception

    The sample size used to interrogate the customers may not truly represent the actual views of the total population and this outcome may mislead the management and end up suffering losses.

About the Author - Dr Geoffrey Mbuva(PhD-Finance) is a lecturer of Finance and Accountancy at Kenyatta University, Kenya. He is an enthusiast of teaching and making accounting & research tutorials for his readers.